Standing in the 21st century, we can easily experience that the ecosystem of payment has been changed. The main reason behind it is the advancement of technology. Technology has enabled online businesses and therefore, middle and small businessmen can expand their businesses flawlessly. Along with this, people are giving more preference to online payment that makes the transaction process more convenient. According to a survey, people are giving more importance to credit card transactions than other forms of payments. Considering this point in mind, businesses are accepting card payments through various payment terminals.
However, accepting online credit card payment is not a new thing and therefore, there are many businessmen who are facing problems to understand the ins and outs of the entire credit card processing system. Well, it is a fact that credit card processing is not as easy as it looks. Consequently, people are holding many misconceptions regarding this complicated credit card processing system. We at International Payment Solutions understand this concern and therefore, we have come up with certain points regarding credit card processing that you need to know. Moreover, if you are someone who has just started an online business and facing difficulties to understand credit card processing system, you are at the right place. So, have a look at the following points:
Credit Card Processing Fees
When it comes to credit card processing fees, many businessmen get confused as there is a complex structure working behind it. Basically, the credit card processing fees consist of three parts- the merchant processor’s margin, the interchange rate and the card brand rate. Most businessmen think that the card processor companies set the interchange fee. But, it is completely wrong as it is the credit card brand that sets the interchange fee. Credit card issuing banks issue the fees.
How Merchant Service Providers Make Money
The margin rate of the merchant service provider is generally charged on top of the interchange fee. If we talk about the rest of the fees, it actually goes to the other parties that facilitate the credit card transactions.
Yes, there are certain institutions working behind a credit card transactions. From a customer’s point of view, it is a very easy process. But, credit card brand, credit card issuing bank along with the merchant processor work behind this real-time process.
The customer generally initiates the transactions. After that, the merchant processor passes the information to the credit card network. The network shares the information with the credit card issuing bank. The bank takes the final decision depending upon the credit available to that cardholder. The ban either approves or declines the transaction and shares the information with the credit card network. The card network passes the information to the merchant processor. Thus, a merchant gets to know whether a transaction is completed or not. So, a certain amount from the interchange fee goes to the card network as the card network is being used. The rest of the part goes to the card-issuing bank as it is processing the transaction.
When Merchants Get Their Profit
Although the credit card processing is a real-time process, the merchants do not get the transaction amount instantly in their bank accounts. The entire transaction amount of a particular day is kept in a batch so that the merchant can dispute any transaction if it is needed. It is actually better than processing a refund. However, the merchant gets his or her profit after the settlement of a batch. Now, here, many confusions arrive.
There are two types of settlements- net settlement and gross settlement. In the case of net settlements, the payment processor deducts the credit card processing fee and deposit the rest of the amount in your bank account. On the other side, if the merchant goes for gross settlement, the payment processor will deposit the entire payment into the merchant’s bank account. At the end of each month, the card processing company will withdraw the card processing fee from the merchant’s bank account.
Is There Any Need Of Multi-Currency Processing?
Well, it is another misconception that is inextricably related to credit card processing. Many merchants believe that they need multi-currency processing to accept bill payments or other kinds of payments from international customers. But, it is not true. If the card brand that the customer and the payment processor are using is the same, you will be able to accept payments from them. If you do not have any multi-currency processing, you don’t need to worry. The customer will make a purchase in his local currency from your business.
Not An IPS Merchant?
By now, you have probably understood everything about credit card processing. Now, when it comes to choosing a merchant processor for your business, we will recommend to go with International Payment Solutions. This virtual platform has years of experience and you will always get fruitful outcomes.